Standard Bank to start sharia services in Nigeria this year

Standard Bank plans to start sharia-compliant banking in Nigeria this year to benefit from the needs of Africa’s largest Muslim population. Stanbic IBTC Bank, a unit of Standard Bank, won a licence in principle last month and planned to offer Islamic services at its 160 branches in the fourth quarter, chief executive Sola David-Borha said on July 13.

Standard Chartered, the UK’s second-largest lender by market value, told the central bank it would like to provide the products, David Adepoju, the Lagos-based head of global markets at Standard Chartered Bank Nigeria, said last month.

The west African country, the continent’s biggest oil producer and home to about 78 million Muslims, is competing with Senegal, Egypt and South Africa in seeking to expand in the $1 trillion (R7.1 trillion) Islamic finance industry.

Central bank governor Lamido Sanusi said in June that Nigeria wanted to be a “hub” for sharia-compliant finance in the region and planned to sell its first sukuk, or Islamic bond, within 18 months.

“It is difficult to see how a country with such a large Muslim population will continue for much longer without offering its people an alternative to conventional banking, particularly given the interest in Nigeria shown by some international banks,” Abolade Kehinde, a Lagos-based senior tax manager at PwC Nigeria, said earlier this month.

The country, where about 70 percent have no access to regular banking services, aims to diversify the economy by developing financial services. Africa’s third-largest economy would expand about 7.8 percent this year, driven by the non-oil sector, Sanusi said last month.

Gross domestic product grew 8.4 percent in 2010, according to the International Monetary Fund.

Nigeria is trying to stabilise its banking industry after a debt crisis in 2009 almost led to its collapse. That year, the Central Bank of Nigeria fired the chief executives of eight lenders, pumped 620 billion naira (R28bn) into ailing banks and created a state-owned company to buy bad debt.

The Securities and Exchange Commission aimed to have a framework for Islamic financial products by the end of the year, Arunma Oteh, the regulator’s director-general, said on June 23 in London.

The central bank had granted a licence to the country’s first Islamic bank, Jaiz International Bank, the deputy governor Kingsley Moghalu said in South Africa last month.

Stanbic IBTC had a licence to begin operating Islamic banking branches within six months and if it failed to do so within that time, the lender would need to reapply for approval, he said.

Nigeria’s 155 million people are divided almost evenly between Muslims and Christians, according to the CIA World Factbook.

The central bank has faced criticism from Christian groups that the introduction of Islamic banking may fan religious tension. Saidu Dogo, the secretary of the Christian Association of Nigeria in 19 northern states, said it was unconstitutional for the regulator to define all non-interest banking as Islamic.

“If there is any system in Nigeria that can discriminate against anybody, then it is null and void,” he said on Thursday from Kaduna. “Our children will be discriminated against.”

More than 14 000 people died in ethnic and religious clashes in the country between 1999 and 2009, according to the Brussels-based International Crisis Group.

“This is a financial product,” Moghalu said last month in Pretoria. “It’s got nothing to do with religion.”

Global sales of Islamic bonds, which pay investors returns based on assets to comply with a ban on interest, more than doubled this year to $16.8 billion from the year-earlier period, data show.

Senegal planned to sell $200 million in local currency sukuk this year, Finance Minister Abdoulaye Diop said in June.

Egypt’s financial markets regulator in June agreed in principle on a law allowing companies to sell and trade sharia-compliant bonds.

Absa Group, the South African bank controlled by Barclays, might offer Islamic services in Nigeria if it got a licence, Louis von Zeuner, the deputy chief executive, said on August 2.

Absa opened a representative office in Nigeria in November last year and is eyeing the market potential.

“Africa is more a commercial and investment banking play but if a key market shows some movement we can’t ignore it,” Von Zeuner said. “We are mindful of the challenges.”

London-based Standard Chartered, which is interested in getting an Islamic banking licence, hoped to receive approval from the central bank within 12 months, Adepoju said on July 12.

“I don’t think it’s an accident that it’s the international banks who are pioneers; they have launched those products outside in other markets,” said Lagos-based David-Borha at Stanbic IBTC Bank, which is aiming to add 20 branches in the nation by the end of the year.